The 8-nation grouping Saarc, which includes India, Pakistan, Bangladesh and Sri Lanka, is working to expand the region's free trade agreement in goods, or Safta, implemented six years ago to include services and investments. The broad contours of the agreement are still being worked upon.

"RBI has argued that it allows foreign banks to open branches in the country under the WTO agreement. There is no need for any bilateral or plurilateral agreement over and above that," said a government official. India had committed to the World Trade Organization (WTO) in 1997 to give 12 new branch licences to foreign banks every year.

RBI has so far exceeded that number. "RBI has also said that it is not in favour of India making any requests to other Saarc countries for opening up their financial sector," the official added. The other members of Saarc are Bhutan, Maldives, Nepal and Afghanistan. Intra-regional trade under SAFTA has hit $1.4 billion.

Another government official said India's decision to exclude financial services from the services and investment pact could further impede its progress. "Some countries do not want to liberalise several services sectors as they fear India, which is the biggest economy in the region, will take advantage of its size," the official said.

Four countries Afghanistan, Bhutan, Nepal and the Maldives are yet to sign the agreement on services. India, however, is taking all steps to promote this agreement. It has decided to reduce the sensitive lists of items that it has excluded from the FTA in goods, especially for the least developed countries.